How widespread is counterfeiting?At any given time, some $200 million in bogus U.S. bills is in circulation worldwide, authorities say. About $60 million of those fakes circulates through the U.S. each year. Counterfeiting represents only a tiny fraction of the $800 billion in circulation, but it can be a nightmare for merchants or consumers who end up with the phony bills, because counterfeits can’t be exchanged for the genuine article. “It’s like a hot potato,” says Secret Service agent Bill Leege. “Whoever’s stuck with it is stuck with it.” In 2005, counterfeiters in Washington, D.C., laundered $3,900 through the Amen Gift Shop’s Western Union terminal, paying for wire transfers with phony money and collecting real cash on the other end. Shopowner Nwaka Egbulem had to reimburse Western Union out of his own pocket and shuttered his business. “It was devastating,” he says.

How old a problem is this?Older than U.S. currency itself. During the Revolutionary War, the British circulated counterfeit Continental dollars throughout the Colonies, aiming to mess up their economies. The effort was so successful that an object deemed to have no value was said to be “not worth a Continental.” After the Revolution, the U.S. government allowed private banks to issue their own notes, theoretically redeemable for gold or silver. But with hundreds of private currencies in circulation, it was virtually impossible to distinguish real notes from the fakes, and by some accounts, half the bills in circulation were bogus. During the Civil War, the Confederates circulated so many counterfeit notes from Northern banks that in 1865, Abraham Lincoln established the Secret Service to track them down. It was the beginning of a cat-and-mouse game that continues to this day.

Who are the players?Until the advent of personal computers and printers, counterfeiting was dominated by skilled specialists backed by criminal organizations, which could afford engraving tools, special inks, and printing presses. The government countered them with technological advances, such as presses that printed black ink on the front of bills and green on the reverse—hence the term “greenbacks”—and highly detailed engraving. These days, lower-quality bills tend to be made by small-time criminals out for a quick buck. Instead of printing thousands of bills at a time, says Treasury official Ringan Doty, counterfeiters “just print enough to get them through the day.” Higher-quality fakes, known as supernotes, are produced mostly by regimes hostile to the U.S., especially Iran and North Korea, which according to the State Department use government presses equipped with the latest technology (see box).

Is it easy to produce fakes?Too easy. Today’s counterfeiters can simply scan a bill into a computer and print out an accurate copy on a high-resolution printer. Even finding the right paper poses little problem. Since 1879, the U.S. Mint has used a proprietary blend of linen and cotton fibers produced solely by Crane Paper in Massachusetts. It’s virtually impossible for amateurs to duplicate, but counterfeiters can create reasonable facsimiles using high-rag-content paper. Such fakes are not hard to spot—as long as the person receiving the bill is paying attention. That’s why counterfeiters like to pass bad bills in dimly lit bars or during busy periods at fast-food restaurants. “When it’s lunchtime at McDonald’s and everyone is screaming for their Big Macs, it’s hard for an employee to check out every bill they’re handed,” says Thomas Farrell of the Secret Service.

Aren’t there machines that detect fakes?Yes, but even they can be defeated by one popular counterfeiting technique. Taking a cue from Colombian drug gangs, counterfeiters have been bleaching $5 bills and superimposing Ben Franklin’s portrait and the $100 denomination on them. Melody Shimmel, a bank security expert in Florida, admits she’s been fooled by such fakes. “I’m an old teller from 35 years back,” she says, “and I can’t feel a difference.” About the only way to spot one is to hold the bill up to the light and look for the watermark. If it’s a portrait of Lincoln rather than Franklin, the bill is a phony. Always trying to stay ahead of the counterfeiters, the U.S. redesigns its bills every seven years or so. The new $100 note is the latest such effort, and it’s considered the most sophisticated paper money ever printed.

What’s so special about it?The new C-note features ink that changes color when the bill is twisted, multicolored magnetic threads embedded in the paper, and images, including the Liberty Bell, that appear and disappear when the bill is turned this way and that. But criminals can still fake older designs. And passing them may be getting easier, ironically because the government has been so good at removing counterfeits from circulation that most people don’t expect to see bogus bills. “To some degree,” says Tom Ferguson of the U.S. Bureau of Engraving and Printing, “we’re a victim of our own success.”